The government’s asset monetisation programme has been gaining prominence in recent times. Limited fiscal spending has nudged the government to look at alternative ways of infrastructure financing. At a recent webinar on Public Asset Monetisation and Recycling, Tuhin Pandey, secretary, Department of Investment and Public Asset Management (DIPAM), Ministry of Finance, spoke about the need for asset monetisation, the impact of Covid-19 on the programme, and the upcoming opportunities…
The government has been laying emphasis on public asset monetisation and recycling as an important part of infrastructure development. There are two types of asset monetisation. The first relates to non-core assets such as land, buildings and townships while the other bucket of assets comprises core assets of central public sector enterprises (CPSEs). DIPAM is currently involved in the capital management of CPSEs. The objective of the government’s asset monetisation programme is to unlock value of suboptimal, underutilised assets for greater financial leverage and to accelerate economic activities that can generate employment opportunities. The use of new and innovative measures such as asset monetisation has assumed importance to support infrastructure financing in the country by recycling the capital of government-owned infrastructure entities and generate funds to be spent on new projects. The programme will ensure capacity addition and efficiency improvement and the creation of a framework for attracting long-term institutional investments on the back of future receivables.
The government has monetised assets in the road sector through the toll-operate-transfer (TOT) model. The National Highways Authority of India has identified 6,000 km of highway projects, some of which are either under bidding or will be put up on the block in the future.
Infrastructure investment trusts (InvITs) have been gaining popularity. The Cabinet Committee on Economic Affairs recently approved the InvIT to be launched by Power Grid Corporation of India Limited (Powergrid) which will help the firm garner about Rs 70 billion. A lot of activity in the InvIT space is expected in the near future. Besides, the transfer of development rights is useful for sustainable urban development. Though this has been used traditionally, it needs to be encouraged further. Real estate investment trusts (REITs) too hold a lot of potential.
Apart from policy measures, an institutional structure has been created in the form of the Core Group of Secretaries on Asset Monetisation for the overall implementation of the asset monetisation programme. NITI Aayog is working with various ministries to identify and recommend assets for monetisation.
With regard to non-core assets, it needs to be acknowledged that these have the potential to yield revenues. One of the models can be the direct contractual approach under which large upfront payments for the land could be made to the government coupled with small annual payments or alternatively a small upfront payment could be made along with annual payments. In another model, in Delhi, for instance, land has been used to finance the creation of government housing. NBCC (India) Limited has successfully used this model for the development of an urban space. Thus, without the government actually investing funds, land can be used to create assets which could be monetised later. This model may be replicated throughout the country wherever surplus government land is available.
DIPAM, along with the Department of Economic Affairs, is creating awareness and encouraging government departments and CPSEs to develop an asset monetisation plan and identify monetisation opportunities. The target for asset monetisation will be included as a parameter in assessing the performance of the CPSEs and their performance rating will be affected if their asset monetisation target is not achieved.
Covid-19 has hit several sectors of the economy, including infrastructure. However, infrastructure spending is also a way to revive economic activity. While there has been some impact on the asset monetisation programme, CPSEs are being encouraged to take quicker decisions. There are significant opportunities to monetise core assets, though these assets need to be bundled appropriately to attract investors. Non-core assets such as buildings and property will find fewer takers at the present time. This is because of issues in terms of conducting physical site inspections and obtaining local authority approvals. Going forward, things are expected to improve and ease further.
For the success of the asset monetisation programme, institutional capacity within the government along with greater clarity of strategic objectives is essential. There is an existing pipeline of assets that will be taken up for monetisation in the next six months. These include six airports for privatisation, transmission lines to be parked under Powergrid’s InvIT, and highway stretches to be monetised under upcoming TOT bundles. While the pandemic has impacted asset monetisation activity, the government is gearing up to accelerate it.